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Matt Smith

Matt Smith

Taking a voyage across the world of energy with ClipperData’s Director of Commodity Research. Follow on Twitter @ClipperData, @mattvsmith01

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Oil Prices Take A Hit As Saudis Report Record Production

Roughnecks at work

The wind has been taken out of the sails of today’s crude rally by a super-sized Saudi production number from the monthly OPEC report, in combination with a dubious EIA report (West Coast imports reaching the highest level since April 2014 does not pass the sniff test. Hum dee dum). Hark, here are five things to consider in oil markets today:

1) North Africa is home to two OPEC members, Algeria and Libya, and both are seeing signs of life from their exports. While Libya’s recent challenges are well known, oil exports have just clambered back above 300,000 barrels per day for the first time since May of last year.

As for Algeria, our ClipperData show its exports for June also reached their highest level since July 2015 – with its light sweet Saharan blend arriving in eight countries. Although Europe is the destination for some three-quarters of Algeria’s oil exports, North America is a consistent buyer.

While the cargoes to Canada make their way to the East Coast, volumes to the U.S. predominantly head to the U.S. Gulf – unlike flows from Nigeria, which largely head to East Coast refiners. As for exports to Europe this year, the leading recipient in Southern Europe is Italy, with France and the UK the biggest beneficiary in Northwest Europe.

(Click to enlarge)

2) The latest OPEC oil market report is out, and it looks like Saudi Arabia has thrown in the towel in terms of targeting market share. (Only kidding). According to primary sources, Saudi production has reached 10.67 million barrels per day, up ~120,000 bpd on the prior month.

While it is not unusual to see Saudi production ramping up in the summer given higher demand for crude to be used for power generation, what is unusual is that production is now at a record high, above the peak seen last summer (see below). Although secondary communications peg production at a lesser 10.48mn bpd, this is still a lofty level. Related: Mexico Made $3 Billion From Oil Hedging In 2016 – What is Their 2017 Strategy?

(Click to enlarge)

3) In terms of other highlights from the OPEC report, the cartel has revised up demand growth for this year to 1.22mn bpd, up 30,000 bpd from last month; it projects 90 percent of this demand growth to come from emerging markets. The cartel is also being vigilant about which shoe could be next to drop, given high inventories of both crude and products (hark, 3,045 million barrels in OECD stocks, 311 million bbls above the 5-year average).

OPEC currently sees slowing demand for middle distillates, and fears that the supply side could ‘continue exerting pressure‘ on OECD distillate inventories, which are 80 million bbls above the five-year average:

4) As for yesterday’s EIA Short Term Energy Outlook, despite being less fun of a read than the OPEC report (opec = epic), it had some interesting nuggets. It expects 1.4 million bpd of demand growth this year and next, while seeing production dropping off from China by 180,000 bpd this year, and an additional 80,000 bpd next year – encouraged by a lack of investment.

It also projects North Sea production to drop 200,000 bpd next year, and Russia by 150,000 bpd (which is contrast to other recent projections). It sees Canadian production next year marginally higher. It still doesn’t expect to see inventory draws beginning until mid-next year:

(Click to enlarge)

5) Finally, despite draws to both gasoline and distillates from today’s weekly inventory report, builds elsewhere have lifted total U.S. crude and product inventories to a new record at over 1.39 billion barrels. This number has risen by 200 million barrels in the last 17 months. Glut ahoy!

By Matt Smith

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